Written by N Chandra Mohan
The Prime Minister has again a rumor surrounding the provision of Universal Basic Income (UBI) recommended by a report on the state of inequality commissioned by the Economic Advisory Council (EAC-PM).
One suggestion was to introduce a UBI to reduce the income gap towards a more equitable distribution of income in the Indian labor market.
Simply put, UBI is the money paid by the state to all citizens to take care of the necessities of life. It provides a “safety net to protect any citizen from drowning below the minimum standard of living,” according to Vijay Yoshi, an Emeritus professor at Merton College in Oxford, who was probably an early economist with Professor Pranab Vardhan of the University of California at Berkeley. Who recommended such a plan in India. This concept has gained enough traction to be characterized as “conceptually attractive” in the 2016-17 Economic Survey.
UBI’s appeal – especially to economic reformers who prefer a minimal state – is that it represents a potential alternative to various social welfare programs that are not effective in reducing poverty. When the National Rural Employment Guarantee Scheme was introduced in the first term of the previous UPA regime, such reformers rejected the idea as it would lead to widespread leakage and corruption.
They are annoyed by the huge inefficient subsidy king apparently intended for the poor. It is better to scrap all these ineffective subsidies and anti-poverty schemes and instead provide direct cash transfers to all.
Is UBI affordable? Is it possible? Yoshi estimated spending at 3.5% of GDP, where the Economic Survey estimates it to be 4-5% of GDP, with the top 25% not part of the income bracket. Yoshi’s tab is to subsidize, reduce tax breaks, impose taxes on agricultural income, among other measures that free up resources up to 10% of GDP.
He suggested that 2.5% could go to reduce the revenue deficit of the central and state governments. The other 4% could be used to increase government investment and social spending.
The balance is for UBI which is three times the subsidy bill budgeted for 2022-23. Of course, there will be resistance to reducing subsidies and removing tax breaks. “We will land in a situation where people will stand in parliament and demand that the current subsidy be continued and above that (UBI),” said former finance minister Arun Jaitley.
However, the question of affordability alone cannot derail UBI in India as there is a critical mass of semi-rural basic income schemes that have been implemented and can be scaled up without financial pressure. The Prime Minister transferred money from Kisan Samman Yojana
6,000 each to 120 million small and marginal farmers. This scheme follows the highly successful Rythu Bandu scheme of Telengana that has benefitted 5.8 million farmers with transfers of 5,000 per acre per season. Not to be outdone, Orissa has unleashed crushing aid or kalia to increase its livelihood and income. If Raithu Friend only benefits landowners with a clear title to their land, then Kalia is more involved in providing financial assistance to all farmers, including share farmers and tenants who do not have a title to their land, and landless agricultural workers. Then there is the Raithu Bharosa Scheme in Andhra Pradesh and the Rajiv Gandhi Kisan Nyaya Yojana in Chhattisgarh.
At the all-India level in 2018-19, 6.43% of the annual income of farmers constituted a cash transfer of PM Kisan, which is much higher for poor states like Bihar, Jharkhand, Uttarakhand, Orissa, MP and Chhattisgarh. The size of small and marginal farms is also 20 times more than that of medium and large farms.
The benefits of Kalia are significant for small and marginal farmers as they are alongside PM Kisan. With the exception of Raithu Bandu, where medium and large farmers benefit the most, income support is more inclusive of other state government schemes and “Income Support Scheme: PM Kisan’s assessment promotes more equity across farm size in terms of state” Economic and Political Weekly, August 21, 2021. Government Schemes by A. HN Poetry et al.
Going back to UBI, however, a fundamental question is, if the minimum income is guaranteed universally, where will most citizens get improved nutrition, healthcare and educational benefits for children? What is the benefit of basic income when there are no such facilities in remote villages of the country? In developed countries, a UBI was largely able to do (although no one did, despite discussions and debates) because there were many welfare states that provided essential public services, including child protection. In India, a UBI cannot simply be a substitute for a state lagging behind in providing essential services.
(The author is a New Delhi-based economics and business commentator. His views are personal.)